The macroeconomic impacts of government debt in Pakistan

Authors

Ateeb Akhter Shah Syed, State Bank of PakistanFollow
Kaneez Fatima, University of BalochistanFollow
Junaid Kamal, State Bank of PakistanFollow

Author ORCID Identifier

Corresponding Author: 0000-0003-3872-9609

Abstract

This paper examines the Ricardian equivalence hypothesis for Pakistan using a vector error-correction model. The sample period extends from June 2002 to January 2020. The results are reported using variance decompositions and impulse response functions. The base model contains six variables and is estimated with 4 lags. We find support for the idea that wealth does not increase as government debt increases; Hence, it proves the fact that economic agents are rational actors and foresee current expansionary actions of the government that result in accumulation of debt as the present value of future taxation that they have to pay and not an increase in wealth. The results remain robust to a change in sample, in Choleski ordering of the variables and in the lag length of the estimated models.

Keywords

Ricardian equivalence, The real federal government debt, VECM, Pakistan

DOI

https://doi.org/10.54784/1990-6587.1467

Journal of Economic Literature Subject Codes

E00, H2, H50, H63

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Recommended Citation

Syed, A., Fatima, K., & Kamal, J. (2022). The macroeconomic impacts of government debt in Pakistan. Business Review, 17(2), 41-55. Retrieved from https://doi.org/10.54784/1990-6587.1467